As the Chinese IT giant’s revenues continued to decrease as a result of “unfavourable macroeconomic conditions,” Lenovo pledged to invest an additional US$1 billion in artificial intelligence devices, infrastructure, and solutions over the following three years.
In its earnings report released last week, the Beijing-based company said revenue for the first quarter of its 2023 fiscal year, which ended on June 30, decreased 24% year over year to US$12.9 billion as a result of a significant decline in PC sales and a smaller decline in server sales.
“The booming of the intelligent technologies such as AI-generated content is propelling the wider adoption of AI, accelerating digital and intelligent transformation across industries,” said Lenovo Chief Executive and Chairman Yuanqing Yang during the company’s results call.
The planned investment, according to Lenovo, expands upon the company’s already-existing AI products and capabilities across its three business units, including the use of AI for the entire lifecycle of client devices in the Intelligent Devices Group, AI-powered device intelligence for predictive support in the Solutions and Services Group, and AI-powered hardware infrastructure in the Infrastructure Solutions Group.
“For many years, Lenovo has been driving our transformation to become a full-stack intelligent solution provider, and we are well positioned to capture the significant growth opportunities ahead,” Yang continued.
The Intelligent Devices Group, Lenovo’s largest business, saw revenue fall 28% year over year to US$10.3 billion in the first quarter due to a difficult market that, according to Yang, caused the average unit revenue of PCs to decline due to “declining component price and intensified competition.”
However, he emphasised that the business kept its position as the top PC vendor by market share, and that inventory levels “normalised to a healthy level” during the course of the three-month period.
Yang further stated that Lenovo’s Motorola division set a new record for smartphone activations during a ten-year period.
Due to weaker demand from cloud service providers and supply issues that prevented the company from supplying additional AI systems, sales in Lenovo’s server and storage division, the Infrastructure Solutions Group, decreased 8% year over year to US$1.9 billion.
Yang added that the “industry’s slower than expected transition to the next-generation platform” was another factor contributing to the decline in Infrastructure Solutions Group sales.
But he went on to say that the company had experienced “hyper growth in storage, software, services, and high-performance computing,” with storage and AI hardware infrastructure expanding by triple digits in the first quarter compared to the same period last year.
The Solutions and Services Group, whose revenue increased 18% year over year to US$1.7 billion, was Lenovo’s first-quarter financial high point.
According to Yang, this was made possible by the company’s “significant progress” in growing its managed services, project, and solution services, while its support services sector continued to be its “core profit engine.”
According to Yang, “Our service-led business achieved strong growth and sustained profitability despite a difficult market and unfavourable macroeconomic conditions.”
In Yang’s opinion, Lenovo’s services expansion, which contributed to the company’s non-PC revenue mix increasing by 4 percentage points to 41%, showed the company’s “effectiveness” in “building diversified growth engines.”
Lenovo’s performance in the first quarter led to a net income of US$191 million, which was down 66% year over year, and US$1.48 in earnings per share.
The company’s US$12.9 billion in revenue for the quarter fell short by US$610 million of what financial analysts had predicted.
In the upcoming two to three quarters, Yang said he is “cautiously optimistic” about Lenovo’s business recovering. He also said that the client device may bounce back and start growing in the second half of the year.
In order to produce consistent profitability improvement and continue to drive change and innovation to develop our better future for all, he stated, “looking ahead, we will more effectively control expenses and mitigate risks.”
Following last week’s earnings announcement, Lenovo’s share price decreased by 2.5%.